What are risks of making air shipments when using documents against payment method?

Documents Against Payment (D/P) is a payment method used in international trade transactions.

This payment method has couple of alternative names such as documentary collections, cash against documents, CAD and documents against acceptance.

There are various advantages of using this payment method in export and import operations.

Some of the advantages of documentary collection payment method can be mentioned as follows:
  • Documentary collection payment method is easy. 
  • Documentary collection is relatively a cheap payment option comparing to letters of credit. 
  • Documentary collection is a fast international payment type comparing to letters of credit.

Despite all of these advantages stated above, documentary collection payment has couple of disadvantages, which have to be burdened by the exporters.

Documentary collection payment method inherits greater risks comparing to letters of credit, bank payment obligation and bank guarantees. 

Banks have very limited obligations against exporters.

What are risks of documentary collections for exporters when the shipment effected via air transportation?

The main risk of the documentary collection for the exporters is that under the air shipments the goods could be delivered to the final buyer without the need of the original documents.

If the importer is a fraudulent company, then they would never apply to presenting bank in order to collect the original documents. Instead importer could apply to the transport company and gets the goods by simply proving his identity.

Alternatively fraudulent importers leave goods at the import customs. During this period they do not reply to exporter's calls. They simply cut all their communications with the exporting companies. 

They act in a such way because untouched goods, which have been waiting at the import customs, will be sold out in auctions after a reasonable time. The waiting period will vary from one country to another but it would be logical to expect a 3-6 month period.

Example : Real life situation

We are a small exporting company located in Morocco. We have made a shipment to a new customer in France against a mixed payment. According to sales contract conditions payment should have been made 50% in advance and 50% documents against payment.

We have received the advance payment and make the shipment via air. Although we have sent all the shipping documents via bank under documents against payment, we have never received the remaining 50% payment.

We have waited 15days after we have presented documents. Then we asked to our customer the remaining balance payment. They claimed that the payment has been made. But our bank confirmed us that no further payment has been received. 

One week later once again we asked our customer state of the payment. Additionally our bank sent a swift message to the importer's bank in France. Both of them have not responded our questions. 

At the same time we have confirmed through our freight forwarder that the importer has released the good, even if the air waybill has been consigned to the importer's bank. 

Now we are searching possible ways to get our money by legal means.

Conclusion :

Documentary collection payment method is a risky option for the exporters, especially if the shipment will be effected via air. 

Even if you consigned the air waybill to the name of the importer's bank, it is possible that the importer company could receive the goods without having the original shipping documents.

Receiving some amount of the order total may not be changing the situation.

As a result exporters should be very careful when working with documentary collection payment, if shipment will not be sea freight but air or road transportation.